Lawyers advise bond oversight committees to drop ethics rules

Jan. 21, 2014

Updated 4:30 p.m.

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Magnolia School District third-graders get a swim lesson. In 2011 Magnolia signed up for a $3.2 million school bond deal that will cost taxpayers $22.5 million to repay. The extraordinary cost of that borrowing is because repayment is delayed for as long as 30 years. Such exorbitant borrowing costs have school finance watchdogs worried about the independence of bond oversight committees. REGISTER FILE PHOTO

Magnolia School District third-graders get a swim lesson. In 2011 Magnolia signed up for a $3.2 million school bond deal that will cost taxpayers $22.5 million to repay. The extraordinary cost of that borrowing is because repayment is delayed for as long as 30 years. Such exorbitant borrowing costs have school finance watchdogs worried about the independence of bond oversight committees. REGISTER FILE PHOTO

A law firm that is paid millions of dollars each year from taxpayer-funded education bonds is advising California public schools that they no longer need to follow ethics rules meant to ensure those monies are properly spent.

Jones Hall, one of the state’s largest law firms specializing in school bond deals, recently advised Magnolia School District in Anaheim that the members of a committee who monitor how bond funds are spent no longer have to disclose gifts and other payments they receive. That disclosure is a key requirement of the state’s ethics law, which is designed to stop public officials from being co-opted by anyone seeking government business.

Last week, the Orange County Board of Supervisors expressed alarm at Magnolia’s proposal to drop the gift and income reporting requirement. The school district needs the supervisors’ approval to move ahead with their plan.

Supervisor Todd Spitzer said he is worried that with the loss of the disclosure “there’s no way to see if those people are independent.”

The supervisors will discuss the proposal again at their January 28 meeting.

Whether or not the oversight committees are covered by the ethics rules appears to be a gray area in the law. But school watchdogs say removing the reporting requirements would raise questions about how much oversight the committees actually provide.

“You want independent people to objectively review the expenses,” explained Alicia Minyen, a board member of the California League of Bond Oversight Committees. “If you receive a gift you may not have the incentive to scrutinize the costs billed by that company. The integrity of the oversight could be compromised.”

The oversight committees, made-up of seven volunteer citizens, are required by state law for school districts that issue bonds under Proposition 39. That proposition, which became law in 2000, made it easier for public schools to borrow money for construction. It lowered the threshold for bond approval to 55 percent of the vote down from the previously-required two-thirds.

Among the committee’s duties: Make sure the district does not pay too much to law firms, banks and other professionals working on the bonds.

Jones Hall is among the firms that have tried to court California school officials by paying for rounds of golf, dinners and cocktail parties at conferences such as the Coalition for Adequate School Housing, also known as CASH.

Some districts that have hired those companies later agreed to bond deals that left taxpayers with exorbitantbills.

In 2011, Magnolia paid Jones Hall and two other firms to complete a deal that included a $3.2 million borrowing that will cost taxpayers $22.5 million to repay. The extraordinary cost of that borrowing is because it was designed as a “capital appreciation bond” that delays repayments for as long as 30 years.

District officials said they have paid Jones Hall $77,926 for work on that deal and another one earlier this year.

In December, a Jones Hall lawyer advised Magnolia officials in a letter that the bond oversight committee’s members were not required to file the annual disclosure form required by the state Political Reform Act. The disclosure, known as Form 700, requires officials to detail gifts of more than $50, travel reimbursements and other payments received from companies and other private parties. It also requires a detail of the official’s financial investments, including real estate.

Courtney Jones, the lawyer, explained that it was the firm’s opinion that even though the committee members had a duty to review bond expenditures and tell the public about anything improper, they had no “decision-making authority.” Without that authority, she said, the members weren’t public officials who must comply with the state ethics law.

Jones did not respond to several calls and emails from the Register.

County supervisor John Moorlach disagreed with that reasoning at last week’s meeting. “They are decision-influencers,” he said.

A staff lawyer at the state Fair Political Practices Commission, which enforces the ethics law, said the agency lets school districts decide whether their bond oversight committees have authority to make decisions and need to file the annual disclosure form.

Pasadena Unified recently changed its rules so that members of its bond oversight committee no longer have to file the reports.

If Magnolia follows suit, a construction company or another firm could provide gifts or payments to committee members with no public disclosure.

Kevin Smith, Magnolia’s chief business officer, explained that some committee members had been confused by the disclosure form. “We feel it’s unnecessary,” he said.

He said the members would still have to sign an ethics form, promising that they won’t try to influence a school decision that could benefit them personally.

In 2010, voters agreed that Magnolia could borrow as much as $16.3 million for the repair and modernization of the district’s nine elementary schools. The district serves parts of Anaheim and Stanton.

Supervisor Spitzer pointed out that language in the 2010 bond measure had explained to voters that the oversight committee would be independent.

“If they didn’t want an independent board, or they didn’t want them to fill out financials, they should have disclosed that,” he said. “That was the law at the time.”

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